15.2.1 Mission and Drivers

Having a clear mission and measureable objectives for a company’s energy efficiency program provides direction and defines a level of commitment for the work. Some companies prioritize energy and sustainability programs, implying that the benefits of energy efficient projects have been understood and tested through internal initiatives. These benefits include employee satisfaction, stronger brand reputation and recognition, and increased customer loyalty. Conversely, other companies explore sustainable initiatives with no clear understanding of the specific opportunities, a lack of internal expertise, and uncertainty about the business value and intangible benefits of these projects. Successful energy efficiency investments require starting with a clear statement of the objectives to be achieved through those investments, and of the ways in which the potential benefits will be obtained.

15.2.2 Set Level of Assessment

Once a mission and objectives are set, the organization needs to conduct an assessment of its current energy consumption as a baseline against which improvements can be measured and as a means of identifying opportunities or gaps.

Energy Review: Conducting an energy review of facilities and production processes is typically the first step. This initial assessment is usually a desktop analysis with data that the company already has. This review can start from a high level, involving only available electricity bills, to a more specific level including direct measurement of high consumption devices. These measurements can eventually become the foundation of an Energy Management System, an organizational initiative to achieve energy efficiency through clear and planned procedures and methods to ensure continual improvement.

Set Energy Baselines: Baselining entails measuring energy use and energy intensity at a determined level of detail for the purpose of establishing a benchmark for comparing future consumption levels. This process identifies key categories from the Energy Review and establishes current levels of consumption. It is used to chart the impact of adopted energy efficiency measures such as those presented in Section 15.3.

15.2.3 Recognize Opportunities and Risk

After a baseline has been set, the company should explore a range of options, and identifying costs, returns, and risks for those options.

Identify Opportunities: Projects range by type of products or a combination of products and financial models. Opportunities include more efficient lighting systems, better appliances, modern and efficient HVAC systems, and building packages. These represent the types of opportunities that are often chosen in the early stages of energy consumption management, as they both save money and have a relatively high probability of success. A further section in this chapter provides a more comprehensive list of energy efficiency opportunities.

Identify Risk: In this step, the company assesses the risks associated with each of the opportunities identified. The most common outcome of this exercise is a list of risks that indicate the way each opportunity may affect project cost, time, scope, and quality. This, in turn, is the basis for a series of decisions that may help mitigate, transfer, or eliminate each risk. Companies tend to assign this activity to the Project Office or the group that may be in charge of the project. The bottom line is that no project can be selected before risks have been identified and mitigation options evaluated.

15.2.4 Select Projects

The criteria for evaluating energy efficiency projects fall into three categories: The most commonly used metrics are economic or financial ones, often balanced by risk metrics. As energy efficiency becomes more central to a company’s competitive positioning, however, strategic considerations are brought to bear as well.

Economic Criteria: As shown in Figure 14.5, many energy efficiency projects can be sold purely on financial returns, such as return of investment (ROI) or payback periods (e.g., less than 2 years).

Risk Assessment: Risk, of course, counterbalances returns. Low risk projects with short payback periods, or low hanging fruit, are the most favored ones. For instance, efficient lighting systems that substitute incandescent bulbs are common. They do not involve a high capital investment, do not require dramatic changes in infrastructure or employee culture, and can be deployed by phases and sectors.

Strategic considerations. Low-hanging-fruit projects deliver quick results and credibility for project leaders. Therefore, it is common practice to start with these types of projects and roll them out across the organization. However, at some point, the only way to achieve higher efficiencies is through synergistic and bundled projects that involve various technologies, departments and higher capital investment. These initiatives are most feasible when they are part of a long-term plan and are endorsed by top management.

15.2.5 Implementation and Communication

Once projects are identified, evaluated and then selected, they have to be implemented. Often this requires engagement of employees across the organization. Keeping employees informed about a company’s energy efficiency efforts can empower them to explore other means to reduce costs. It can also provide employees the opportunity to inform the broader community about what the company is doing to conserve energy. The early energy efficiency initiatives are usually low investment projects that may not require a large communications strategy. Conversely, medium-term and long-term initiatives require a more strategic communications plan, which serves to gather and establish project expectations, performance and impact. An effective communications plan successfully informs stakeholders and reduces the need to create additional project documentation. Furthermore, employees can use energy efficiency measures to enhance the brand’s internal and public image, and market the company’s position on sustainable programs. Typical types of communication include internal and external newsletters, and press releases [energy.ca.gov] [5].

Through this simple framework, companies can establish goals, create a baseline, identify, select, and implement energy efficiency improvement opportunities, and then communicate about them. We now examine the types of opportunities a manufacturing company might encounter.

15.3.1 Building Envelope

The building envelope includes windows, doors, roofs, and insulation, none of which actively consume energy, but often lead to higher energy consumption through minimal temperature retention. Building envelope choices vary depending on climate as some products are designed to retain heat in colder climates, while others resist heat in warmer climates. For instance, Dow Chemical developed a variety of materials, such as STYROFOAM™ XPS Foam Insulation, that insulate building roofs, floors, and walls [6]. Through such innovations, Dow Building Solutions became a member of the Passivhaus Trust, an organization that promotes and builds low energy consumption and emissions buildings [Passivhaus Trust] [7]. Solutions like this allow for the design and construction of more energy efficient and sustainable buildings.

The key variables for measuring the performance of a building envelope include the rate of temperature transfer to the outside environment (U-Factor), the absorption/reflection of solar heat energy (solar heat gain coefficient), the amount of sunlight passed through (visible transmittance), air leakage, and defense against water build-up (condensation resistance). Regardless of the climate, most parties seek to minimize the U-Factor and air leakage, while maximizing the visible transmittance and condensation resistance. The only variable that is climate dependent is the solar heat gain coefficient, which is optimized to minimize space temperature control [Federal Energy Management Program] [8].

The manufacturers in this area include material manufacturers, such as chemical companies Dupont and Dow, and product manufacturers such as Certainteed, GE, and Saint-Goabain.

Case study:

The owners of a three-tower, 1008-unit apartment complex in Toronto, Canada were dealing with steadily escalating energy costs due to aging HVAC systems and the need for a new building envelope. The new building envelope would increase energy efficiency, control stack pressure, and reduce odor problems. Focusing on the building envelope, doors and staircases were weather-stripped and rooms were made more airtight. The HVAC system was also retrofitted to provide a smart thermostat for tenants with a motion sensor, which would revert to preprogramed temperatures when motion was not detected. Energy savings from this large scale project exceeded $200,000 a year [9].

15.3.2 Heating, Ventilation and Air Conditioning (HVAC)

HVAC solutions include boilers, air conditioners, air and water-cooled chillers, and fans. They represent a material amount of the energy consumed by a building as HVAC can account for 50% of the energy used by a commercial building in certain locales [10].The selected HVAC product choice should account for the local climate, including humidity and temperature, as well as other energy efficiency measures. For example, a better building envelope can reduce the size and amount of needed HVAC equipment.

The key variables for these HVAC solutions vary more than those for the building envelope. The boiler is rated based on the efficiency of converting energy to heat, which is in part based on energy consumed per hour. Chillers are divided into two categories, air-cooled and water-cooled electric chillers. They are rated at their conversion of energy to cooling, and their efficiency is calculated at both full-load and partial load, which is important as chillers are often used below full power. Similar criteria are used to evaluate the other HVAC products [Federal Energy Management Program] [11].

The manufacturers in this area are equipment manufacturers, the largest of which include GE, Siemens, Carrier, and Trane.

Case study:

St. Michael’s Hospital in Toronto, Canada benefits from $1.4 million in annual savings from a major heating and cooling retrofit. This result centered on replacing two aging centrifugal chillers with a new YORK^® MaxE™ water-to-water heat pump manufactured by Johnson Controls. The hospital’s steam bill has been reduced as much as $8,000 daily during the coldest parts of Toronto’s winter. Daily savings usually range between $2,500–$6,000 [Johnson Controls, 2008] [12].

15.3.3 Efficient Lighting

The variety of efficient lighting products can be surprising, and lighting technology is evolving at an increasingly rapid rate. Lighting is generally used 10 to 12 hours a day, 5 days a week, 52 weeks a year, which makes it the second highest power consuming category after HVAC [13]. There are three categories of lighting: outdoor fixture; indoor fixture; and indoor freestanding. Outdoor and indoor fixtures provide space lighting, whereas indoor freestanding lighting provides more focused light for individual use. The three types vary in the ways in which they fulfill light needs, but all use the same technology. The use of efficient lighting technologies can reduce excess heat generated and lower HVAC costs as well.

The key variables for measuring lighting products are lumens (or brightness), wattage (power used), lamp life, and degradation. As an example, advanced fluorescent lights produce ~2,500 lumens compared to 10,000 lumens from direct sunlight and 1,180 for a standard incandescent light bulb [14]. There are four categories of lighting products: incandescent, fluorescent, compact fluorescents (CFLs), and light emitting diodes (LEDs). The products are evaluated by which provides the most lumens for the fewest watts with minimal degradation over the longest period at the lowest cost. The price of the bulb often represents a fraction of the total cost of use, so light bulbs are compared using a net present value approach that takes both initial purchase and cost over lifetime into account.

Incandescent light bulbs operate by using the resistance of tungsten to generate heat, part of which generates light. There was a phased-in ban of incandescent bulbs started in March 2013 [15]. Fluorescent and CFL differ only in size and the fixture requirements, and both emit light by using electricity to excite mercury atoms that then give off light through phosphor. They provide the least expensive options, although they contain mercury, which requires special disposal. Finally, there are LEDs, which are the semiconductor solution to lighting. Although currently more expensive than CFLs, they may prove less expensive as production grows, they move down the cost curve, and the bulbs have additional functionality such as colors and dimming.

The key manufacturers are Philips, GE, Osram Sylvania (a subsidiary of Siemens) and Panasonic.

Case study:

In 2005, Walmart developed a prototype store that would increase energy efficiency by 25% to 30% by 2009. Electricity was the highest operations expense; thus, LED lights were installed for freezer case lighting. Expenses in this category were reduced by 70% and as a result, this lighting initiative was adapted to buildings, sales floors, and parking lots. In 2011, Walmart retrofitted six distribution centers with interior LED lighting, reducing energy use by over 16 million kilowatt hours by 2012 [16].

15.3.4 Efficient Motors and Systems

As the efficiency of motors increases, operating costs decrease. Therefore, upgrading the equipment in a supply chain can make processes more energy-efficient and hence more cost efficient. These upgrades can help manufacturers to be more competitive in the marketplace. It is important to keep up with regular maintenance of equipment and plan ahead to obtain high efficiency equipment replacements to reduce the downtime of facilities [17]. The most common variables and design considerations include selecting a proper size for the motor, matching the motor to the needs of the driven equipment, and correct adverse operating conditions such as voltage variations, motor alignment, weather conditions, and single phasing.

The list of key manufacturers is extensive and includes companies like ABB, Emerson Electric, Rockwell Automation, Siemens, and Toshiba.

Case study:

Several companies have adopted more efficient motors due to the expected cost efficiencies of these products. For example, Siemens’ industrial motors and variable speed technology can reduce energy consumption up to 70%. The efficiency ratings of combined cycle power plants around the world usually reduce consumption up to 50%, whereas Siemens saves over 60% [18].

15.3.5 Building Management Systems

Building Management Systems (BMS) encompasses all of the preceding categories and can drive efficiency by using sensors to remotely control the building envelope (through blinds and window tinting), HVAC, motors, and lighting. BMS are computers that control and monitor the mechanical and electric services in the building, following the trend towards ‘smart’ products and sensors. The system is divided into hardware and software pieces.

The key variables to evaluate for a BMS include the amount of electricity it controls; some include lighting and others do not. They are also rated on how smart they are: Do they just receive information and give alerts or is the system empowered to take action? Smart BMS allow for advanced tenant interaction, where, for example, customers can let the system know if the temperature is too high or low. In addition, the advanced systems can integrate with the utility, allowing for non-essential equipment use to be reduced for improved demand-response, thus increasing the tenant’s revenues and helping the utility shave peak load.

The key manufacturers in this space are Johnson Controls, Honeywell, and Schneider Electric. IBM, Asure and E-Mon all provide software solutions.

Case study:

As one of the largest global manufacturers of tissue and hygiene products, Kimberly-Clark has executed many measures to reduce energy consumption. In 2010, the company installed control computers at their plants that automatically turn down or off the HVAC and water chillers when demand is reduced. New, variable-speed fans were installed, which slow down or turn off ventilation when desired temperature and humidity levels are reached. In addition, heat recovery equipment installed at a Thailand plant reduces energy consumption, saving the company nearly $700,000 per year. Energy efficient lights were installed in many manufacturing plants, cutting consumption by almost 50%. That year, overall energy use decreased by 4.3%, and energy efficiency per unit of product improved by 6% [19]. In 2012, Kimberly-Clark received the US EPA’s Combined Heat and Power Partnership 2012 Certificate of Avoided GHG Emissions, increasing energy efficiency by 15% that year. Three of its facilities combined have avoided emissions of 3.97 million metric tons of carbon dioxide [20]. To support the ongoing GHG emissions reduction effort, the company set the goal to eliminate the overconsumption of energy above those benchmarks by 2015. This strong performance shows how identifying and executing on the right type of measures and programs can lead to successes in energy efficiency.

15.4.1 Tenants and Owners

The tenant is the occupier of the space. Tenants can range from single-person small businesses to multinational organizations. They are usually the party paying for energy use and are the direct recipient of energy savings. They are usually on leases for five or fewer years. They tend to select spaces based on location, amenities, and all-in rental costs including service charges (utilities, maintenance, etc.). The tenant is usually supportive of energy efficiency measures, but does not have the incentive to bear the capital cost on its own.

Tenants are short-term partners, because they are only in the space for about five years. This is a major hindrance to investing in energy efficiency services. Moreover, the tenant is usually not versed in real estate, so does not have the organizational capacity or management capacity needed to administer a program that only affects rent and utility bills.

Building owners vary from vast real estate investment trusts with thousands of buildings to owner occupied premises. They are usually entitled to make the final decision on energy efficiency investments. Owners have traditionally not made energy efficiency investments, because they have not been able to recover the investment via higher rent and/or in energy savings.

The building owners are not motivated to pursue projects unless tenants demand it, because energy investment projects represent an insubstantial percentage of the building’s value. Additionally, the management time required outweighs the immediate benefit, which is difficult to recover. Although building owners have a long-term perspective, they do not have the incentives to take action.

15.4.2 Regulators

Federal, state, and local governments have various options to impact energy efficiency adoption. The government can provide cash rebates for capital invested in approved products. In addition, they can provide tax credits to offset future tax payments. The federal government can also allow for accelerated depreciation to lower current earnings and thus current taxes. The municipal government can provide expedited permitting, waived fees, and other administrative benefits for rapid project adoption. In addition, some areas offer lower power prices as commercial buildings reduce their demand. Some states offer renewable energy credits or carbon offsets, which can be sold to other energy consumers to meet state energy efficiency and carbon targets. A more recent government initiative is PACE (property assessed clean energy), where the cost of energy efficiency projects is financed by a third-party and repaid through property taxes.

The government focuses on its role in protecting public goods (e.g., the environment) by increasing productivity per energy consumed. It has the longest term perspective, which is why it can offer interesting solutions like PACE.

15.4.3 Banks/Lenders

The banks provide financing for the purchase of the building and energy efficiency products. They are often large organizations with little appetite for risk. They tend to discourage innovation and investments that do not contribute to increased cash flows. The banks help to set the payback period for investments by charging a cost of capital on the debt financing. They also impact the project by setting the seniority, the order of repayment, for the energy efficiency measures.

The bank is a long-term investor, because it must manage the project in case of default. Similar to the building owner, the bank does not want to invest in a project that does not directly improve cash flows. In addition, the bank is more cautious than others about financing new investment that increases outstanding debt.

15.4.4 Energy Service Companies (ESCOs)

The Energy Service Company (ESCO) typically develops, implements and finances energy projects [21]. ESCOs can be nonprofit or commercial organizations such as utilities. Utilities provide energy to the space. In many regulated markets, utilities are incentivized to discourage efficiency, because their earnings are based on the quantity of power sold. However, more recently, utilities have become more involved as some states have moved to decouple utility profits and power produced to align incentives. Some utilities have offered energy efficiency equipment through on-bill financing, where the utility provides the capital for the purchase and then recoups the investment through charges on the utility bill.

Some of the ESCO’s more common services include the installation and maintenance of energy-efficient equipment, building refurbishments, facility and financing arrangement, monitoring and verifying the project’s savings, and the supply of energy [22]. They are extremely driven to pursue projects, as this is their core line of business. The ESCO provides an outsourcing function for building managers. They have market information on the latest available efficiency technologies and are frequently willing to take risks that building managers are unwilling to take. If the project is economic with sufficient margins for the ESCO, the ESCO will strive to implement the upgrades.

The ESCO is external to the conventional set of stakeholders. However, once they are contracted, they are committed for either a 10- or 20-year contract. That contract reflects the expected life of the capital equipment and/or the available financing. The contract usually requires the ESCO to track product performance and receive payment for energy savings. In addition, it frequently uses the initial sale to increase contracts within the building.

15.4.5 Business Models

In-house projects tend to be the first option to consider as companies start their energy efficiency journey. In-house projects can also be tied to cost efficiency initiatives that do not require persuading a large group of adoptors.

More business options beyond the project leader’s facilities are also available. The energy efficiency market is dynamic, with a large number of stakeholders ready to offer their expertise and technologies. A number of business models can be applied and implemented by ESCOs.

There are two main ways to partner with an ESCO. One way is through Energy Performance Contracting with guaranteed savings. Here, an ESCO implements technical measures with ongoing measurement and verification processes throughout the contract, and includes a guaranteed savings goal. Payment to the ESCO is primarily tied to the energy savings achieved. In the event that guaranteed savings are not achieved throughout, then the ESCO covers the shortfall. Energy efficiency of the facility is measured before and after the ESCO’s service as well as throughout the contract’s life. Under this model, the contractor assumes the risks of technical design and performance guarantee [23].

A second strategy to partner with an ESCO is through a Shared Savings model, which also has high energy savings potential. An ESCO designs, finances and implements the project, verifies energy savings, and shares an agreed percentage of the actual energy savings over a fixed period with the customer. An ESCO is incentivized to provide services to reduce costs since the value of payment is tied to the saved energy costs and the price of energy. The ESCO guarantees performance primarily through cost savings. It assumes the risks of its service performance and the customer’s credit.

Additional business benefits for manufacturing facilities may include:

1. Avoided capital investments, by transfering this role to the ESCO or a financier.
2. Moderinization of a buildings’s energy infrastructure – the ESCO will make investments that reduce energy use, but may also improve reliability, reduce maintenance costs and upgrade equipment that has reached its end of life.
3. Less management time – management can focus more on desired outcomes without having to focus on how these outcomes are achieved.

In the long run, energy efficiency initiatives can only suceed when adopted by operations executives and integrated into a company’s culture. Energy efficiency implies continuous improvement across departments and the participation of everyone in the organization. Companies may reference the ISO 50001 standard for continuous improvment and monitoring of energy efficiency initiatives.

Case study:

In 2011, Camfil Farr certified to the ISO 50001 standard. Camfil Farr is a global leader and manufactuerer of air filtration and clean air solutions. They have 23 production plants worldwide and their products are used in offices, mines, hospitals, and more. The company established monthly reports on energy consumption from gas, electricity, and logistics as well as an online tool to calculate savings and monitor progress. They identified previously unmonitored areas of energy use to create a more holistic energy consumption profile. One of the main factors for the company’s success is in engaging every member of staff, and each staff member is rewarded for the energy savings through a bonus. Camfil has reduced energy costs from £500,000 in 2008 to £300,000 in 2011 [24].